Chinese online sales set for growth

1 July 2013

BEIJING: China is set to overtake the US as the world's biggest ecommerce market this year, after becoming the largest consumer of luxury goods in 2012.

A white paper by Observer Solutions stated that there are 242m online shoppers in China, and increasing numbers are now trading up from buying everyday items like clothing and cosmetics to acquiring big-ticket items such as cars via this route.

For example, e-tailer JD.com joined forces with Mercedes-Benz last year to run a flash sale of 300 Smart cars, all of which were snapped up within 89 minutes. Meanwhile Taobao, another online vendor, sells vehicles from nine auto brands on its site, including Cadillac, Buick and Chevrolet.

Observer Solutions found that Western luxury brands are already performing well on the web in tier one cities such as Beijing and Shanghai, while demand in lower tier cities is largely untapped.

Growth in the online sales of luxury goods rose by 71% from 2011 to 2012, driven in part by the lack of an effective and convenient bricks-and-mortar infrastructure in inland areas, as well as exorbitant tariffs, which make the cost of expansion prohibitive.

Luxury brands tend to take a conservative approach to ecommerce, but Observer Solutions warned that this paves the way for unauthorised competitors to gain ground, which can damage brand reputation and distribution control.

With surveys showing that 70% of Chinese shoppers are willing to buy luxury brands online, the challenge is to persuade them of the goods' authenticity. The report found that 50% are worried they might be buying fakes.

Previous attempts by high-end retailers in this space have proved less than successful, however. Neiman Marcus, the US department store, found this out after its entry in March 2012. It had low brand recognition and no significant price differential, plus a lack of understanding of what local consumers wanted.

Marks & Spencer, the UK retailer, similarly stumbled because it failed to research Chinese tastes or offer clothes of an appropriate size.

By contrast Vipshop, founded in 2008, has already become the leading online discount retailer for brands in China. It has achieved this by better understanding the price-value equation, and recognising that discounts on recognisable brands remain a principal driver of online sales growth.